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Alphabet (NASDAQ:GOOGL) topped Wall Street expectations on both earnings and revenue for the fourth quarter of 2025, but its sharply higher-than-expected capital expenditure guidance for 2026 unsettled investors, sending shares lower in premarket U.S. trading on Thursday.
The results come at a sensitive time for technology stocks, with the artificial intelligence trade under pressure amid concerns over lofty valuations, intensifying competition, and ballooning spending plans. Software and AI-linked names have faced heavy rotation recently, as investors reassess the near-term payoff from massive investments in data centers, chips, and generative AI platforms.
Capex outlook dominates reaction
Alphabet said it expects capital expenditures of between $175 billion and $185 billion in 2026, a dramatic jump from 2025 levels and far above the Street’s estimate of about $119.5 billion. Like its megacap peers, the Google parent is accelerating spending to expand AI infrastructure, develop advanced models, and scale its cloud and platform capabilities.
While the long-term AI opportunity remains intact, the scale of the planned outlays reinforced investor concerns about margin pressure and returns on capital in the near term.
Strong stock performance heading into earnings
Alphabet entered earnings season as the standout performer among the “Magnificent Seven.” Its Class A shares surged 65.3% in 2025, the strongest gain in the group, and are already up another 8.5% year-to-date, comfortably outperforming both its megacap peers and the S&P 500.
Momentum was especially strong late last year, with shares jumping 28.8% in the final three months of 2025. That rally was driven by enthusiasm around Alphabet’s latest Gemini AI model and a high-profile partnership with Apple to help power AI features on the iPhone, including enhancements to Siri.
Quarterly results beat expectations
For the fourth quarter of 2025, Alphabet reported earnings of $2.82 per share on revenue of $113.83 billion, beating analyst expectations of $2.64 per share and $111.12 billion in revenue. The company’s prior quarter had already marked its first-ever $100 billion revenue quarter, underscoring the scale of its growth.
Operating income rose 16% year-on-year to $35.93 billion, reflecting continued strength across its core businesses despite heavy investment.
Cloud and core services both deliver
Investor focus remained firmly on Google Cloud, which houses much of Alphabet’s AI infrastructure and generative AI offerings. The segment posted a 48% year-on-year surge in revenue to $17.66 billion, reinforcing its status as one of Alphabet’s fastest-growing divisions.
Meanwhile, the core Google Services business — encompassing Search, YouTube, advertising, Android, Chrome, and Maps — continued to deliver solid performance. Revenue in this segment rose 14% year-on-year to $95.86 billion, highlighting the durability of Alphabet’s advertising and platform ecosystem even as AI reshapes the competitive landscape.
Other Bets remain a drag
Alphabet’s Other Bets segment, which includes autonomous driving, healthcare initiatives, and internet services, generated $370 million in revenue, down 7.5% year-on-year. While strategically important, the segment remains small relative to the group and continues to weigh on overall growth.
Overall, Alphabet’s earnings strength underscored its operational momentum, but the sheer scale of its planned AI investment for 2026 has shifted investor focus squarely toward spending discipline and long-term returns.
